RLL Container Report - 20 August 2014
From: John Keir, Ross Learmont Ltd Email: john.keir@telia.com Date: 20 August 2014
The world turned upside down.
In the space of two short weeks, the transport sector in Russia and Europe has been turned upside down, as Russia and the West each imposed trade embargoes on various classes of products. For its part, Russia stopped the import from Europe and North America of a large number of products ranging from fruit and vegetables to fish. It is now up to the transport sector on both sides of the political divide to sort out the logistical mess caused by the politicians.
Last year, the European Union exported Euro 1.07 Billion of fruit to Russia. As a result of the Russian embargo, the European Commission announced emergency funding of Euro 125 million for fruit and vegetable growers hit by Russia's ban on most imported Western food. The crops affected are those in full season now, with no storage option for most of them and no immediate alternative market available. According to the Financial Times, Lithuania, Poland, Finland and Denmark each faces losses running into hundreds of millions of Euros. Norway, which is not a member of the EU, will be hit by the ban on fish imports. Last year, Norway sold 105,000 tons of Atlantic salmon to Russia.
While it would normally be a simple matter of substituting Norwegian imports with fish from inland waters, fishermen in the Russian Far East report the poorest salmon catch for over 20 years. To this, one can add the problem of an ageing fleet of specialised rolling stock in the form of refrigerated and insulated rail wagons. The situation with canned fish products is less problematic, as domestic canneries can, in theory, accommodate the country’s demand.
The container industry had anticipated a growth in foodstuffs, especially temperature-controlled and liquid footstuffs. The reefer container fleet is expected to increase by over one-fifth in the next five years, as more and more conventional reefer vessels are scrapped. Already, Maersk’s PS-type vessels can carry 14,770 teu and are equipped with 1,000 reefer plugs, while even bigger vessels are entering service. Container slot availability is expanding rapidly and may provide the excess capacity that will be needed to replace European perishable imports.
On 21 July, Mary Maersk left Algeciras, Spain on its eastward journey, bound for Tanjung Pelepas, Malaysia. On board were no less than 17,603 twenty-foot equivalent units (TEU), the highest number ever loaded on a container vessel. A month later, CMA CGM Danube called at Odessa. The vessel is fitted with no less than 1,458 reefer plugs, which is the largest number installed on such a ship. The CMA CGM Danube is the first in a series of 28 vessels being built in China. By the time the last of the order is delivered in 2016, reefer container capacity into the Black Sea will have increased several fold allowing greater quantities of perishable products to be imported from all over the globe. And this is precisely how Russia plans to replace European food imports with fruit, vegetables and meat from further afield.
Russia has entered into negotiations with countries in South America and Asia to replace imports from the West. This geographical shift will also involve a modal shift. Imports of fruit and vegetables from neighbouring European countries have traditionally been transported by large fleets of trucks. Now, however, these cargoes are more likely to arrive by conventional reefer vessels or, increasingly, by the new, giant container vessels.
Ironically, Russia had recently concluded a deal with China, which intends to use ports in southern Primorye to trans-ship agricultural and other products from North East China to ports in the south of the country as well as to overseas markets such as Singapore. As the cargo flow is primarily outbound, Russia could possibly make use of the extra port capacity to import agricultural products, especially from S E Asia.
In the first seven months of the year, container throughput via Russian Far East ports rose by 7.9% with Vladivostok leading the way on almost half a million teu. That represents a highly commendable 11.3% rise on last year’s figure. Vostochny followed up with a 6.8% increase to register an interim total for the year of 285,200 teu. However, the star performer in terms of percentage increases goes to the port of Korsakov, which clocked up an impressive 12.3% rise in box traffic to return an interim total of 61,000 teu.
In a timely move, China announced the establishment of a new logistics centre for fruit and vegetables right on the Russian border opposite Ussuriysk. The new Baorong zone in Dongning covers an area of 70,000 square metres and comes equipped with 30,000 square metres of refrigerated and dry warehousing. The Chinese have invested Yuan 60 million in the project, which will also feature quicker customs clearance. In addition, the Chinese plan to open by the end of this year a second facility dedicated to the full range of agricultural products.
With the whole transport sector in a state of flux, this should be the ideal moment for intermodal operators on both sides of the geographical divide to respond to the challenge by proposing various methods to solve the logistical problems thrown up by this political contretemps. The basic infrastructure in the form of container terminals and regular block trains for both dry and refrigerated cargoes is in place. At the same time, the global shipping industry is providing a timely increase in slot capacity, which will cut down both transit times and cargo losses incurred during loading and discharging operations.
John Keir, Ross Learmont Ltd.
20 August 2014
Copyright ©, 2014, John Keir